Uganda has maintained the trend started in 2020, of lowering the electricity tariff in order to achieve its industrialization objectives and to offer its manufacturers a competitive price.
For the April to June quarter, the Electricity Regulatory Authority (ERA) issued a tariff reduction of 1.44%, based on positive electricity demand growth between January and March , compared to the last quarter of 2021. The reduction translates to 6.7 Ush for each unit of electricity consumed in the consumer categories of domestic, commercial and industrial users classified as large and very large consumers.
When announcing the new tariff for this quarter, ERA officials said electricity demand fell from 1,260.25 GWh between October and December 2021 to 1,353.1 GWh in the first three month of 2022. According to the ERA, the growth is attributed to the full reopening of the economy and other initiatives such as the cooking tariff.
“Early indications show that domestic consumers have adopted this at a higher rate than usual,” explained Patrick Tutembe, Senior Economist – Pricing, at ERA.
The tariff reduction is mainly supported by the appreciation of the exchange rate, with the Ugandan shilling continuing to hold firm against the dollar in recent months and throughout the pandemic period.
For example, the Ugandan shilling appreciated by 0.71% against the dollar, from Ush 3,564.09 to the dollar in the first quarter of 2022 to Ush 3,538.96 to the dollar in the second quarter.
The new tariff also takes into account the growth of the country’s energy mix towards capacity plants and inflation, with the consumer price index increasing by 1.01%, from 115.35 for November 2021 to 116, 52 for February this year.
Despite lower tariffs, the growth in electricity demand is a boon for electricity distributor Umeme, which recorded $524.6 million in revenue in 2021, compared to $446 million in 2020.
But the government’s push for industrialization could put a damper on Umeme’s fortunes, with President Yoweri Museveni calling for a policy to bypass the distributor and supply power directly to large and very large industrial consumers.
Already, the government has launched a pilot project to directly power two industrial parks – Kapeka and the MMP industrial park, a move that will starve power distribution companies, if rolled out to cover the rest of the industrial parks.
Last month, the president promised Chinese investors that he would change the law and speed up the direct supply of electricity to industrial parks.
“Electricity should go directly from generation to consumer, especially the industrial consumer. We should change the law. I will talk to the President [of Parliament]“, he said during the meeting.
Economists say what will determine whether this policy change can be fully rolled out or abandoned, whether the consumption capacity of industries will lead to an increase in energy demand.
Experts cite the need to utilize the generation capacity of solar power plants, mini hydropower plants and mega dams like the 600 MW Karuma hydropower project, which is expected to come on stream this year.